Genie in a bottleneck: How a supply squeeze has worked magic for TiO2

Published: Monday, 02 October 2017

As environmental inspections cut Chinese titanium dioxide output and producers elsewhere in the world fail to pick up the slack, prices for the pigment chemical have staged a surprise turnaround, William Clarke, IM Reporter, finds.

The strength of demand for titanium dioxide (TiO2), the white pigment used in a wide range of coatings, paper, plastics and inks, is considered a lagging indicator of global economic strength.

Rising wealth drives higher demand for manufactured goods and fuels construction activity, pushing pigment prices higher. 

But TiO2 producers have reported that prices for the chemical, which languished though 2015 and most of 2016, have outpaced global economic growth this year, thanks to a slowdown in Chinese production and some bottlenecks in European supply. 

IM’s spot price for pigment-grade TiO2 in northern Europe rose to €2,765-3,190/tonne ($3,306-3,815/tonne*) in May, a two-year high, and have held at that level through the summer, when buying traditionally slows to a crawl. 

Spot markets in Asia have also bounced to a two-year high of $2,700-3,100/tonne (CFR Asia).

"Demand for TiO2 tends to be inline with global GDP growth," Mark Vergano, CEO of US-based chemicals manufacturer The Chemours Co., told investors in August this year.

"However, this year our demand has trended above GDP in the high single digits - a result of market supply tightness," he said. 

The rise in prices comes at a time when the world’s largest TiO2 producers are undergoing major restructuring, with some deepening their presence in the pigment sector, while others are looking to insulate themselves from a historically cyclical market. 

Chinese clampdown slows supply

A major drag on TiO2 prices in recent years has been the fact that China, a huge consumer of the chemical, has swung from being a net importer to a net exporter, as local production soars. 

But Chinese TiO2 producers have been under pressure from tighter emissions regulations since the start of the year, thanks to Beijing’s growing determination to clamp down on pollution.

Industrial pollution is a hot political topic in China, with frequent protests and petitions over air and water quality. 

This situation has spurred the government to take action, sending teams of specially appointed inspectors across the country, bypassing local governments in order to enforce stricter pollution controls. 

Repeated inspections in the main TiO2-producing region of Sichuan meant that Chinese TiO2 companies there were operating at just 50% capacity on average over the summer, due to interruptions.

Chinese TiO2 production has traditionally been dominated by the cheaper sulphate-route product, which principally uses locally mined ilmenite as a feedstock.

But the country’s government has committed to switching predominantly to chloride-route TiO2 production, which is cleaner and yields a higher-quality end product, over the next few years. As well as being less polluting, chloride-route product commands higher prices in Western markets. 

Further environmental controls from the central government may be on the cards. At the end of June, a new director of China’s Ministry of Environmental Protection, Jiegan Li, was appointed and immediately ordered a renewed set of inspections covering all of China’s provinces that may continue until year-end.

According to the China TiO2 Association, tightening environmental regulations are having a knock-on impact on downstream TiO2-consuming industries, including coatings, ink and paper manufacturers.

Coating companies have been among the worst hit, facing both increased raw material costs and weaker demand from buyers.

Chinese TiO2 producers announced another round of price increases in September, citing rising raw material costs and environmental pressures, with leading supplier Lomon Billions Group hiking its prices for the seventh time this year. 

Some companies are also requesting advance cash payments of up to 30% of the total order price in order to secure supply. 

At the end of August, Lomon Billions announced that its orders were fully booked until the middle October. 

In September, the company stated that 30-40% of its production was affected by environmental inspections at its Deyang base in Sichuan province, but said that all of its other production centres were operating at full capacity.  

In Sichuan, pressure from inspection teams and provincial government officials on ilmenite and TiO2 producers has reportedly forced the closure of some facilities. How much capacity can be bought back online, and when this can take place, remains unknown. 

Shandong province, another of China’s major TiO2-producing regions, was also affected by environmental inspections in August, with the results yet to be announced. 

The drive to rationalise the industry has driven smaller producers to shut down at a rapid rate. 

The squeeze on Chinese domestic ilmenite production is encouraging even the biggest vertically integrated TiO2 producers to secure raw material overseas. In August, Lomon Billions signed a memorandum of understanding with Brazil Mineraçáo Santa Elina Group, to supply it with up to 400,000 tpa of ilmenite from its RGM project over 20 years.

M&A activity

Reduced supply of Chinese TiO2 has helped boost prices in Western markets. Demand in Europe has been helped by the recent recovery in the continent’s economic growth, while local supply bottlenecks have also supported TiO2 prices.

At the start of 2017, a fire at US producer Huntsman Corp.’s Pori TiO2 plant in Finland put the facility out of action. The plant, which supplies around 10% of total European TiO2 demand, is not expected to return to full capacity until the end of 2018. 

The increase in sales prices helped European producers book rising revenues in the first half of this year, adding further momentum to a wave of mergers and acquisitions (M&A) currently under way.

In August, Huntsman completed the US listing of its UK-based pigment arm, Venator Materials Plc, raising $454m. 

Huntsman has retained a majority stake in the new company, using the proceeds of the float to pay down debt, as it is itself acquired by Switzerland-based chemical company Clariant. 

At the time of Venator’s listing, Huntsman’s CEO said the deal would help boost value by carving out the historically volatile TiO2 business. 

Chemours, which was spun out of US chemicals firm Du Pont de Nemours in 2015, has seen its profits boom in the last year after initially struggling with low TiO2 prices.  

While Huntsman and DuPont have attempted to insulate themselves from the vagaries of the TiO2 market, others have doubled down on the sector.  

In September this year, US-based Tronox Ltd announced the completion of the $1.3bn sale of its alkali business, a move intended to help fund the acquisition of leading Saudi Arabia-headquartered TiO2 producer Cristal Global.

There has also been speculation that Lomon Billions, which was formed last year when Henan Billions Sichuan Lomon Co. merged, is seeking to buy TiO2 businesses outside China, further consolidating the industry.

The question facing TiO2 sellers, both in Asia and in Europe, is whether demand will pick up enough to sustain recent price rises, if and when supply recovers. As the northern hemisphere summer comes to an end, the direction TiO2 prices move in will depend on how aggressively buyers return to the market.

Producers in China, at least, appear optimistic. In a recent report to investors, Lomon Billions forecast rising sales in the coming months, as downstream customers have limited inventories after clearing supplies over the summer.

European producers, meanwhile, will be poised to see if the market can continue outpacing economic growth, or whether the newly restructured industry is able to ramp up supply to ease shortages and bring prices back down.

Ilmenite projects

In addition to shortages of Chinese ilmenite on international markets, ilmenite exports from India this year have been hit by government clampdowns on illegal beach sand mining in Tamil Nadu, which has all but halted shipments from the country’s top mineral sand-producing state. 

Large-scale developments are on their way elsewhere in the world, however. 

In August, UK-based Bluejay Mining Plc reported that auger drilling was under way at Itelak, the largest target on its Pituffik development in Greenland.

The company said that the drilling discovered deposits of extremely pure ilmenite, leading the company to upgrade expectations for the size of the reserve to 23.6m tonnes, containing up to 8.8% ilmenite. 

London brokerage SP Angel, which acts as nominated adviser to Bluejay, was upbeat on prospects for the resource. 

"The amazing thing about Pituffik is the apparent purity of the ilmenite mineral sands and the near total lack of any other material, particularly clay which bungs up processing at many other mineral sands operations," the broker said in a note. 

"In short, nature has done an amazing job in sorting out the heavy mineral sands from the lighter material and this can be very clearly seen from the air where rivers show plumes of natural sand being washed down the shoreline to other beaches leaving a mass of ilmenite sand on Bluejay’s licences at Pituffik."  

"We note, other beach sands in the region do not appear to have similar areas of ilmenite concentration," SP Angel said.

In the US, the Natural Resources Research Institute (NRRI), part of the University of Minnesota, announced in May that high-quality TiO2 had been extracted using a proprietary process, which the institute says is suitable for commercial application.

The pilot scheme, joint-funded by the Minnesota state government and the University of Minnesota, yielded pigment-grade TiO2 at up to 99.8% purity, processed from 10 tonnes of local ilmenite.

The technology potentially unlocks a massive band of ilmenite deposits which run along the north-east edge of Minnesota, including the Longnose deposit, owned by mining junior American Shield Titanium Group and reported to be among the largest and highest-quality ilmenite deposits in the US.

Drilling at Longnose indicates the presence of around 58m tonnes ilmenite with 17% TiO2 content, according to the Minnesota Minerals Coordinating Committee (MMCC).

The reserves have previously been seen as unusual due to the high proportion of magnesium oxide in the ore, which is hard to remove and compromises the whiteness of the finished product.

But the NRRI’s pilot demonstration was able to produce high-purity TiO2 through its proprietary hydrometallurgical processing.

*Conversions made September 2017

European health concerns

Suppliers of TiO2 for consumer applications are facing the possibility of having to place health warnings on products containing the chemical.

Concerns over the potential health effects of the pigment have been around for decades, but the matter came back into focus in June this year, when risk assessment body the European Chemicals Health Agency proposed that TiO2 should be classified as suspected of causing cancer when inhaled. 

The assessment, which cited studies indicating that TiO2 caused tumours in rats, was prompted by a request from French regulators. 

The recommendation was heavily criticised by the TiO2 industry. The Europe-based Titanium Dioxide Association noted that "the data on which the French proposal relies shows effects in rats, which are not reproducible in other species such as mice or hamsters". 

"Most importantly, there is no evidence of effects in humans – where the industry has large amounts of data," it added.
The association also noted that the effect seen in rats was not unique to TiO2, but is "common to many other substances that are also poorly soluble". 

"The amount of TiO2 that the rats were exposed to in the studies referred in the proposal is far in excess of that to which human workers would ever be exposed."

Speaking to IM in August, the British Chemicals Federation noted that the proposed classification would lead to products containing TiO2 being labelled as "suspected of causing cancer", even in forms that could not be inhaled.
The BCA added that existing regulations also limit the amount of particulates of any sort that can be exposed to.